Covid-19 and its effect on the Housing and Mortgage Market
By Scott Rawlings director of mortgages at Radcliffe and Newlands.
By Scott Rawlings director of mortgages at Radcliffe and Newlands.
If I had a pound for every time a newsreader used the word unprecedented, I would be a rich man by now. Well, I would have at least a few hundred pounds but you get the point. For once though, the hyperbole of the newscaster is accurate. There have been pandemics before but most of us are too young to have experienced them. There have been government interventions before, but not like this. So, in these unprecedented times, I thought it might be useful to give some clarity on what has been happening in the housing and mortgage market.
Valuations – what happened and where we are now
Within the first couple of weeks of lockdown most of the large building survey firms, that banks use, decided to stop carrying out physical valuations. Banks would normally send a surveyor out to a property to assess its value and suitability as security for a loan. This meant that applications were effectively frozen until such time as these valuations could take place. However, most banks quickly moved to a remote valuation model which removes the requirement for a site visit and instead uses online resources like historical values, trends and streetview, for example. Some also sent valuers to view the property exterior from the comfort of their car and asked homeowners to take pictures of the internal rooms and send them to the valuer. This allowed some transactions to resume but banks were only really comfortable carrying out this online assessment where the loan to value was 85% or less, precluding the possibility of anybody getting a mortgage with a lower deposit like 5% or 10%. Only the resumption of physical valuations would allow those transactions to proceed.
Fast forward to mid-May and an easing of the lockdown. Right now, physical valuations have resumed and buyers can view properties. As a result, we are seeing banks happy to lend at the higher loan to values again.
Changes to criteria
Banks have kept their lending criteria under review throughout this lockdown period, making changes as and when they felt appropriate. Here is a summary of some of the key changes:
• Using bonuses in affordability calculations
In the pre-COVID world banks would generally look to include bonuses in assessing affordability. Some taking up to 100% of it into account – some only using 50%. In the post-COVID world lots of banks are now not using bonuses in the calculators at all, presumably for fear of a reduction or disappearance of bonuses in the short term. However, this is not the case across the board and some banks will still take bonuses into account.
• Self-employed income
A number of lenders will now only base lending decisions on 50% of latest tax year’s figures if that client has recently used any of the government measures such as bounce back loans or grants. This is something to be aware of, especially for clients who may need to arrange a mortgage in the next 6 to 18 months. As with bonuses, this is not the case across the board with lenders but it might be an important factor for some clients.
• Furloughed staff
Furloughed staff can still obtain mortgages for a purchase or remortgage but it is likely that the bank will only base their lending decision using 80% of the salary figure – even if the employer is topping up the additional 20%. This situation is obviously very fluid as the scheme is unlikely to last forever.
On the 10th March 2020 the bank of England cut the base rate from 0.75% to 0.25%. This means that the base rate is the lowest it has ever been during a history that goes back over 300 years. But what effect has it had on mortgage rates? Interestingly, the day after the cut several banks actually increased the fixed rates they were willing to offer and withdrew most of their tracker rates. Fast forward to today and currently mortgage rates remain broadly similar to those before the base rate cut. As to whether we will see further reductions or increases remains to be seen.
Mortgage payment holidays
The date for mortgage payment holidays to be requested has been extended to the end of October 2020. Both the banks and the credit reference agencies have confirmed that taking this payment holiday will not adversely affect your credit score. However, a credit score is not the same thing as your ability to borrow and banks do take other things into consideration when making their decisions. So, might it affect your ability to borrow in the future? Payment holidays are there to support people whose incomes have been affected by the virus – and when applying for future mortgages a bank may be less keen to lend if they see that there have been financial concerns in the past. So do consider future borrowing requirements if making decisions around whether to take the payment holiday or not.
Remortgaging during these ‘unprecedented’ times
As mentioned earlier, the banks are still lending and indeed, lending at the higher loan to values which is particularly important for people wanting or needing to move at the moment but also important for those needing to remortgage. It is possible to secure a new mortgage rate up to 6 months before the current deal comes to an end. Doing this 6 months in advance allows the borrower to lock in a mortgage deal that might not be available nearer the end of their current deal but it does not commit them to it so they can always review the market again nearer the time. So, if rates improve then borrowers can still switch to the new lower rate. On the other hand, if lenders decide to reduce borrowing or increase rates because the market has changed in that time – perhaps a second wave of the virus forces another lockdown, for example, but it could be any reason – the borrower still has access to the better deal that was available 6 months prior.
Please do get in touch with Scott and his team. As an RBP client, remember that you will receive a discount on their normal arrangement fees for mortgage advice.
This article is for information purposes only and should not be interpreted as recommendations for advice.
A Mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
You may have to pay an early repayment charge to your existing lender if you remortgage
Radcliffe & Newlands Ltd is an appointed representative of TenetConnect Ltd which is authorised and regulated by the Financial Conduct Authority. TenetConnect Ltd is entered on the FCA register (www.fca.org.uk/register) under reference 149826. Radcliffe and Newlands Ltd Registered Address: 1st Floor, 50 Featherstone Street, London, EC1Y 8RT. Registered in England and Wales, No. 5681687